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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-23 · 108 added, 119 removed, 231 unchanged (50% of the section changed)

8 unchanged sentences

The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the Company’s portfolio.

As of December 31, 2023, the Company owned or had ownership interests in 252 operating apartment communities, comprising 61,997 apartment homes, excluding the Company's ownership in preferred equity co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of one unconsolidated joint venture project.

As of December 31, 2024, the Company owned or had ownership interests in 255 operating apartment communities, comprising 62,157 apartment homes, excluding the Company’s ownership in preferred equity co-investments, loan investments, and two operating commercial buildings.

The Company’s apartment communities are predominately located in the following major regions:

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Seattle Metro (Seattle metropolitan area)

As of December 31, 2023, the Company’s development pipeline was comprised of one unconsolidated joint venture project under development aggregating 264 apartment homes and various predevelopment projects, with total incurred costs of $114.0 million.

The estimated remaining project costs are approximately $12.0 million, $6.5 million of which represents the Company's share of the estimated remaining costs, for total estimated project costs of $126.0 million.

As of December 31, 2023, the Company also had an ownership interest in three operating commercial buildings (totaling approximately 283,000 square feet).

By region, the Company's operating results for 2023 and 2022 and projection for 2024 new housing supply (defined as new multifamily apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing) and 2024 estimated Same-Property revenue growth are as follows:

By region, the Company’s operating results for 2024 and 2023 and projection for 2025 new housing supply (defined as new multifamily apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing) are as follows:

Southern California Region :

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Revenues for “2024 Same-Properties” (as defined below), or “Same-Property revenues,” increased 4.0% in 2024 as compared to 2023.

In 2024, the Company projects new residential supply of 27,400 apartment homes and single family homes, which represents 0.4% of the total housing stock.

Northern California Region :

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2024 Same-Property revenues increased 2.6% in 2024 as compared to 2023.

In 2024, the Company projects new residential supply of 10,500 apartment homes and single family homes, which represents 0.4% of the total housing stock.

Seattle Metro Region :

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2024 Same-Property revenues increased 2.9% in 2024 as compared to 2023.

In 2024, the Company projects new residential supply of 11,700 apartment homes and single family homes, which represents 0.9% of the total housing stock.

In total, the Company projects an increase in 2024 Same-Property revenues of between 0.7% to 2.7%.

Same-Property operating expenses are projected to increase in 2024 by 3.5% to 5.0%.

The Company’s consolidated operating communities are as follows:

In each of these regions, projected 2025 growth in new residential supply of apartment homes and single family homes is expected to be 1% or less of the total housing stock.

The Company’s consolidated operating communities as of December 31, 2024 and 2023 were as follows:

December 31, 2024 December 31, 2023

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Total 54,463 100 % 51,572 100 %

Co-investments, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods.

Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, Wesco VI, BEX IV, and other co-investments, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods.

The communities previously held in the BEXAEW, BEX II, Patina at Midtown, and Century

Towers co-investments, which were consolidated in 2024, are excluded from the table as December 31, 2023 but included in the table as of December 31, 2024.

Market Considerations

The Company is emerging from restrictions resulting from the COVID-19 pandemic and continues to comply with the stated intent of local, county, state and federal laws, some of which limit rent increases during times of emergency and impair the ability to collect unpaid rent during certain timeframes and in various regions in which our communities are located, impacting the Company and its properties.

Concurrently, geopolitical tensions and regional conflicts have increased uncertainty during 2022 and 2023.

Inflation has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a recession.

Due to increased inflation, the U.S.

Federal Reserve raised the federal funds rate a total of seven times during 2022 and four times in 2023.

In response, market interest rates have increased significantly during this time.

The long-term impact of these developments will largely depend on future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets.

Primarily as a result of the impact of the COVID-19 pandemic, the Company's cash delinquencies as a percentage of scheduled rental income for the Company’s stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2023 and 2022) have generally remained higher than the pre-pandemic historical average of 0.35% since the second quarter of 2020.

Cash delinquencies were elevated at 1.3% for 2022 and further increased to 1.9% in 2023.

The lower cash delinquencies in 2022 was due to $34.5 million of Emergency Rental Assistance payments compared to $2.6 million received during 2023, however current tenant delinquencies remained well above pre-pandemic levels.

The Company continues to work with residents to collect such cash delinquencies.

As of December 31, 2023, the delinquencies have not had a material adverse impact to the Company's liquidity position.

The Company's average financial occupancy for the Company's Same-Property portfolio increased slightly from 96.1% for the year ended December 31, 2022 to 96.4% for the year ended December 31, 2023.

Elevated inflation in recent years has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a recession.

In response to increased inflation, the U.S.

Federal Reserve raised the federal funds rate throughout 2022 and 2023 resulting in a significant increase of market interest rates.

In the second half of 2024, the U.S.

Federal Reserve lowered the federal funds rate in conjunction with the softening of U.S.

inflation and short term market interest rates have declined.

Concurrently, geopolitical tensions and regional conflicts have increased uncertainty during recent years.

The long-term impact of these developments will largely depend on the impact on job growth, the broader economy, and reactions by consumers, companies, governmental entities and capital markets.

The foregoing macroeconomic conditions have not negatively impacted the Company’s ability to access traditional funding sources on the same or reasonably similar terms as were available in recent periods prior to the pandemic, as demonstrated by the Company’s financing activity during the year ended December 31, 2024 discussed in the “Liquidity and Capital Resources” section below.

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Comparison of Year Ended December 31, 2024 to the Year Ended December 31, 2023

The Company’s average financial occupancy for the Company’s stabilized apartment communities or "2023 Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2023 and 2022) increased 30 basis points to 96.4% in 2023 from 96.1% in 2022.

The average financial occupancy for the Company’s 2024 Same-Property portfolio (stabilized properties consolidated by the Company for the years ended December 31, 2024 and 2023) was 96.1% and 96.5% for the years ended December 31, 2024 and 2023, respectively.

Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income.

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While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property, which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual income, is not considered the best metric to quantify occupancy.

The regional breakdown of the Company’s 2023 Same-Property portfolio for financial occupancy for the years ended December 31, 2023 and 2022 is as follows:

The regional breakdown of the Company’s 2024 Same-Property portfolio for financial occupancy for the years ended December 31, 2024 and 2023 was as follows:

Year Ended December 31,

Southern California 95.8 % 96.3 %

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Seattle Metro 96.7 % 96.6 %

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2023 Same-Properties.

Number of Apartment Years Ended

December 31, Dollar Percentage

Property Revenues ($ in thousands)

Homes 2023 2022 Change Change

The following table provides a breakdown of property revenue amounts, including the revenues attributable to 2024 Same-Properties ($ in thousands):

Number of Apartment Homes Year Ended

December 31, Dollar Change Percentage Change

2024 Same-Properties:

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Total 2024 Same-Property Revenues

50,187 1,636,531 1,585,007 51,524 3.3 %

2024 Non-Same Property Revenues

127,654 73,257 54,397 74.3 %

Total Property Revenues $ 1,764,185 $ 1,658,264 $ 105,921 6.4 %

2023 Same-Property Revenues increased by $66.4 million or 4.4% to $1.6 billion for 2023 compared to $1.5 billion in 2022.

The increase was primarily attributable to an increase of 4.5% in average rental rates from $2,493 for 2022 to $2,604 for 2023.

2023 Non-Same Property Revenues decreased by $3.8 million or 4.7% to $76.4 million in 2023 compared to $80.2 million in 2022.

The decrease was primarily due to the sales of Anavia in 2022 and of CBC and The Sweeps in 2023, partially offset by the acquisitions of Regency Palm Court and Windsor Court in 2022, the acquisition of Hacienda at Camarillo Oaks in 2023, and an increase in average rental rates.

Management and other fees from affiliates stayed consistent at $11.1 million in 2023 and 2022.

Property operating expenses, excluding real estate taxes increased by $16.3 million or 5.8% to $299.7 million in 2023 compared to $283.4 million in 2022, primarily due to increases of $5.1 million in utilities expenses, $4.7 million in maintenance and repairs expenses, $4.1 million in administrative expenses, and $2.4 million in personnel costs.

2023 Same-Property operating expenses, excluding real estate taxes, increased by $18.0 million or 6.6% to $292.0 million in 2023 compared to $274.0 million in 2022, primarily due to increases of $5.7 million in utilities expenses, $5.1 million in maintenance

and repairs expenses, $4.1 million in insurance and other expenses, $2.7 million in personnel costs, and $0.5 million in administrative expenses.

Real estate taxes increased by $1.9 million or 1.0% to $185.8 million in 2023 compared to $183.9 million in 2022, primarily due to an increase of approximately 2% in California real estate taxes, partially offset by a decrease from 2022 in real estate taxes in the Seattle metro region.

2023 Same-Property real estate taxes increased by $2.1 million or 1.3% to $171.3 million in 2023 compared to $169.2 million in 2022 primarily due to an increase of approximately 2% in California real estate taxes, partially offset by a decrease from 2022 in real estate taxes in the Seattle metro region.

Depreciation and amortization expense increased by $9.1 million or 1.7% to $548.4 million in 2023 compared to $539.3 million in 2022, primarily due to an increase in depreciation expense from the completion of Station Park Green (Phase IV) development property in 2022, the acquisition of the Company's joint venture partner's 49.8% interest in Essex JV LLC co-investment that owned Regency Palm Court and Windsor Court, in 2022, and the acquisition of Hacienda at Camarillo Oaks in 2023.

The increase was partially offset by the sale of Anavia in 2022 and CBC and The Sweeps in 2023.

Gain on sale of real estate and land of $59.2 million in 2023 was attributable to the sale of CBC and The Sweeps apartment home community and the sale of a land parcel.

Interest expense increased by $8.1 million or 4.0% to $212.9 million in 2023 compared to $204.8 million in 2022 , primarily due to borrowing on the $300.0 million unsecured term loan in April 2023, the $298.0 million of 10-year secured loans closed in July 2023, and higher average interest rates resulting in an increase in interest expense of $16.3 million.

2024 Same-Property Revenues increased by $51.5 million or 3.3%.

The increase was primarily attributable to increases of 1.9% in average rental rates from $2,605 for 2023 to $2,655 for 2024, 0.8% in other property income, and 0.9% from a decrease in delinquencies, partially offset by a decrease of 0.4% in occupancy.

2024 Non-Same Property Revenues increased by $54.4 million or 74.3% to $127.7 million in 2024 compared to $73.3 million in 2023.

The increase was primarily due to acquisitions of Hacienda at Camarillo Oaks in 2023, as well as the acquisitions of ARLO Mountain View, Maxwell Sunnyvale, and Beaumont, and the acquisition of the Company’s joint venture partner’s interests in the BEXAEW and BEX II portfolios, Patina at Midtown, and Century Towers in 2024.

The increases were partially offset by the sale of Hillsdale Garden in 2024.

Property operating expenses, excluding real estate taxes increased by $26.4 million or 8.8% to $326.1 million in 2024 compared to $299.7 million in 2023, primarily due to increases of $10.6 million in utilities expenses, $7.8 million in administrative expenses, $7.3 million in personnel costs, and $0.7 million in maintenance and repairs expenses.

2024 Same-Property operating expenses, excluding real estate taxes, increased by $19.5 million or 6.7% to $308.8 million in 2024 compared to $289.3 million in 2023, primarily due to increases of $7.5 million in utilities expenses, $6.9 million in insurance and other expenses, $4.5 million in personnel costs, and $1.3 million in administrative expenses, offset by a decrease of $0.7 million in maintenance and repairs expenses.

Real estate taxes increased by $7.6 million or 4.1% to $193.4 million in 2024 compared to $185.8 million in 2023, primarily due to increases in tax rates in California and the Seattle Metro region and due to the purchase of Hacienda at Camarillo Oaks in 2023 and acquisitions in 2024.

2024 Same-Property real estate taxes increased by $3.4 million or 1.9% to $179.8 million in 2024 compared to $176.4 million in 2023 primarily due to increases in tax rates in California and

the Seattle Metro region.

Depreciation and amortization expense increased by $31.8 million or 5.8% to $580.2 million in 2024 compared to $548.4 million in 2023, primarily due to acquisitions in 2023 and 2024.

These increases were offset by the sale of CBC and The Sweeps in 2023 and Hillsdale Garden in 2024.

Gain on sale of real estate and land of $175.6 million in 2024 was attributable to the sale of Hillsdale Garden in 2024.

Interest expense increased by $22.6 million or 10.6% to $235.5 million in 2024 compared to $212.9 million in 2023 , primarily due to the issuance of $550.0 million senior unsecured notes in 2024 which resulted in an increase in interest expense of $20.1 million.

The increase was also due to borrowing on the $300.0 million unsecured term loan in April 2023, the $298.0 million of 10-year secured loans closed in July 2023, and increased borrowing on the Company’s unsecured lines of credit in 2024 resulting in a $16.2 million increase in interest expense.

Additionally, there was a $0.6 million decrease in capitalized interest in 2024, due to a decrease in development activity as compared to the same period in 2023.

These increases in interest expense were partially offset by regular principal payments and various debts that matured or were paid off, primarily due to the pay down of the $300.0 million of senior unsecured notes due May 1, 2023 and decreased borrowing on the Company's unsecured lines of credit during and after 2022, which resulted in a decrease in interest expense of $9.6 million for 2023.

Interest and other (loss) income increased by $65.3 million or 343.7% to income of $46.3 million in 2023 compared to a loss of $19.0 million in 2022, primarily due to increases of $55.6 million in realized and unrealized gains on marketable securities, $7.3 million in marketable securities and other income, and $3.7 million in insurance reimbursements, legal settlements, and other, driven by a legal settlement claim.

Equity income from co-investments decreased by $15.4 million or 59.2% to $10.6 million in 2023 compared to $26.0 million in 2022, primarily due to a decrease of $17.1 million in co-investment promote income, an increase of $31.6 million in impairment losses from unconsolidated co-investments offset by an increase of $39.7 million in equity income from non-core co-investments.

These increases in interest expense were partially offset by regular principal payments and various debts that matured or were paid off, primarily due to the pay off of the $300.0 million of senior unsecured notes due May 1, 2023 and $400.0 million of senior unsecured notes due May 1, 2024 during and after 2023, which resulted in a decrease in interest expense of $14.3 million for 2024.

Interest and other income increased by $34.7 million or 74.9% to $81.0 million in 2024 compared to $46.3 million in 2023, primarily due to increases of $34.8 million in legal settlements and $1.3 million in interest income, offset by a decrease of $1.7 million in realized and unrealized gains on marketable securities.

Equity income from co-investments increased by $37.6 million or 354.7% to $48.2 million in 2024 compared to $10.6 million in 2023, primarily due to a decrease of $30.0 million in impairment losses from unconsolidated co-investments, increases of $8.7 million in equity income from non-core co-investments, $1.5 million in co-investment promote income, and a decrease of $4.8 million in equity loss from co-investments.

These increases were offset by a decrease of $6.5 million in income from preferred equity investments, including income from early redemption of preferred equity investments.

Gain on remeasurement of co-investments of $210.6 million resulted from the Company's acquisition of its joint venture partner's interests in the BEXAEW and BEX II portfolios, Patina at Midtown and Century Towers.

Comparison of Year Ended December 31, 2023 to the Year Ended December 31, 2022

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Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for 2023, 2022 and 2021 ($ in thousands):

For the year ended December 31,

The following table sets forth the Company’s cash flows for the periods presented ($ in thousands):

Year Ended December 31,

2024 2023 2022

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The primary cash requirement of Essex is its payment of dividends to its stockholders.

Essex also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 7 and 8 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Essex also guarantees some of the Operating Partnership’s debt, as discussed further in Note 7, “Unsecured Debt”, and Note 8, “Mortgage Notes Payable”, to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger Essex’s guarantee obligations, then Essex will be required to fulfill its cash payment commitments under such guarantees.

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Essex may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.

At December 31, 2023, the Company had $391.7 million of unrestricted cash and cash equivalents and $87.8 million in marketable securities.

The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to meet all of its anticipated cash needs during 2024.

As of December 31, 2024, the Company had $66.8 million of unrestricted cash and cash equivalents and $69.8 million in marketable securities, all of which were equity securities.

The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to

meet all of its anticipated cash needs during 2025.

Additionally, the capital markets continue to be available and the Company is able to generate cash from the disposition of real estate assets to finance additional cash flow needs, including continued development and select acquisitions.

In the event that economic disruptions occur, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash flows.

The Company is carefully monitoring and managing its cash position in light of ongoing conditions and levels of operations.

The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

As of December 31, 2024, Moody’s Investor Service and Standard and Poor’s (“S&P”) credit agencies rated Essex Property Trust, Inc.

and Essex Portfolio, L.P.

Baa1/Stable and BBB+/Stable, respectively.

As of December 31, 2024, the Company had $5.2 billion of fixed rate public bonds outstanding at an average interest rate of 3.4% with maturity dates ranging from 2025 to 2050.

As of December 31, 2023, the Company’s mortgage notes payable totaled $887.2 million, net of unamortized premiums and debt issuance costs, which consisted of $665.7 million in fixed rate debt at an average interest rate of 4.3% and maturity dates ranging from 2025 to 2033 and $221.5 million of tax-exempt variable rate demand notes with a weighted average interest rate of 4.6%.

The tax-exempt variable rate demand notes have maturity dates ranging from 2027 to 2046.

$222.7 million is subject to total return swaps.

As of December 31, 2024, the Company’s mortgage notes payable totaled $989.9 million, net of unamortized premiums and debt issuance costs, which consisted of $674.1 million in fixed rate debt at an average interest rate of 4.3% with maturity dates ranging from 2025 to 2033 and $315.8 million of variable rate debt at an average interest rate of 4.2% with maturity dates ranging from 2026 to 2046.

A total of $220.8 million of variable rate debt is tax-exempt demand notes which are subject to total return swaps and $95.0 million of variable rate mortgage notes payable has an interest rate swap that effectively converts $47.5 million to an all-in fixed rate of 2.83%.

As of December 31, 2024, the Company had two unsecured lines of credit aggregating $1.28 billion, including a $1.2 billion unsecured line of credit and a $75.0 million working capital unsecured line of credit.

As of December 31, 2023, there was no amount outstanding on the $1.2 billion unsecured line of credit.

The underlying interest rate is based on a tiered rate structure tied to the Company's credit ratings, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.75% as of December 31, 2023.

As of December 31, 2024, there was $75.0 million outstanding on the $1.2 billion unsecured line of credit.

The underlying interest rate is based on a tiered rate structure tied to the Company’s credit ratings, adjusted for the Company’s sustainability metric adjustment feature, and was at the Adjusted SOFR plus 0.765% as of December 31, 2024.

This facility is scheduled to mature in January 2029, with two six-month extensions, exercisable at the Company’s option.

As of December 31, 2023, there was no amount outstanding on the Company's $35.0 million working capital unsecured line of credit.

As of December 31, 2024, there was $62.9 million outstanding on the Company’s $75.0 million working capital unsecured line of credit.

The underlying interest rate on the $75.0 million line is based on a tiered rate structure tied to the Company’s credit ratings, adjusted for the Company’s sustainability metric adjustment feature, and was at the Adjusted SOFR plus 0.765% as of December 31, 2024.

This facility is scheduled to mature in July 2026.

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These derivatives do not qualify for hedge accounting.

As of December 31, 2023 and 2022, the aggregate carrying value of the interest rate swap contracts were an asset of $4.3 million and $5.6 million, respectively.

As of December 31, 2023 and 2022, the swap contracts were presented in the consolidated balance sheets as an asset of $4.3 million and $5.6 million, respectively, and were included in prepaid expenses and other assets on the consolidated balance sheets.

The aggregate carrying and fair value of the total return swaps was zero at both December 31, 2024 and 2023.

As of December 31, 2024 and 2023 the aggregate carrying value of the interest rate swap contracts are an asset of $5.5 million and $4.3 million, respectively, and is included in prepaid expenses and other assets in the consolidated balance sheets.

The Company had no interest rate cap agreements as of December 31, 2024 and 2023, respectively.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was zero for the years ended December 31, 2024, 2023 and 2022.

Issuance of Common Stock

In September 2021, the Company entered into the 2021 ATM Program, a new equity distribution agreement pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million.

In connection with the 2021 ATM Program, the Company may also enter into related forward sale agreements, and may sell shares of its common stock pursuant to these agreements.

The use of a forward sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receipt of the proceeds from the sale of shares until a later date should the Company elect to settle such forward sale agreement, in whole or in part, in shares of common stock.

The 2021 ATM Program replaced the prior equity distribution agreement entered into in September 2018 (the "2018 ATM Program"), which was terminated upon the establishment of the 2021 ATM Program.

For the years ended December 31, 2023 and 2022, the Company did not sell any shares of its common stock through the 2021 ATM Program.

As of December 31, 2023, there were no outstanding forward purchase agreements, and $900.0 million of shares of common stock remain available to be sold under the 2021 ATM Program.

For the year ended December 31, 2021, the Company did not issue any shares of its common stock through the 2021 ATM Program or through the 2018 ATM Program.

In August 2024, the Company entered into the 2024 ATM Program.

In connection with the 2024 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company's discretion, it may sell shares of its common stock under the 2024 ATM Program under forward sale agreements.

The 2024 ATM Program replaced the 2021 ATM Program, which was terminated upon the establishment of the 2024 ATM Program.

For the years ended December 31, 2024, 2023 and 2022, the Company did not sell any shares of common stock through the 2024 ATM Program nor 2021 ATM Program.

As of December 31, 2024, there were no outstanding forward purchase agreements, and $900.0 million of shares of common stock remained available to be sold under the 2024 ATM Program.

Capital Expenditures

Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property.

For the year ended December 31, 2023, non-revenue generating capital expenditures totaled approximately $2,531 per apartment home.

For the year ended December 31, 2024, non-revenue generating capital expenditures averaged approximately $2,109 per apartment home.

These expenditures do not include expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue or cost savings, and do not include expenditures incurred due to changes in government regulations that the Company would not have incurred otherwise, retail, furniture and fixtures, or expenditures for which the Company has been reimbursed or expects to be reimbursed.

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The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations.

As of December 31, 2023, the Company's development pipeline was comprised of one unconsolidated joint venture project under development aggregating 264 apartment homes and various predevelopment projects, with total incurred costs of $114.0 million.

Estimated remaining project costs are approximately $12.0 million, $6.5 million of which represents the Company's share of the estimated remaining costs, for total estimated project costs of $126.0 million.

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects.

The Company may also acquire land for future development purposes or sale.

As of December 31, 2024, the Company’s development and predevelopment pipeline was comprised of various consolidated predevelopment projects, with total incurred costs of $52.7 million.

The Company expects to fund the development and predevelopment communities by using a combination of some or all of the following sources:

2 unchanged sentences

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities.

As of December 31, 2023, the Company had an interest in 264 apartment homes in communities actively under development with joint ventures for total estimated costs of $102.0 million.

Total estimated remaining costs total approximately $12.0 million, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $6.5 million.

In addition, the Company had an interest in 10,425 apartment homes in operating communities with joint ventures and other investments for a total book value of $437.4 million.

As of December 31, 2024, the Company had an interest in 7,694 apartment homes in operating communities with joint ventures and technology co-investments for a total book value of $379.5 million.

Real Estate and Other Commitments

The following table summarizes the Company's unfunded real estate and other future commitments at December 31, 2023 ($ in thousands):

The following table summarizes the Company’s unfunded real estate and other future commitments as of December 31, 2024 ($ in thousands):

Number of Properties Investment Remaining Commitment

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Non-core co-investments — 86,000 34,465

Consolidated:

Mezzanine loans 1 50,000 4,305

$ 171,000 $ 69,465

(1) Excludes approximately $6.5 million of the Company's share of estimated project costs for LIVIA at Scripps Ranch which have been fully funded.

At December 31, 2023, the Company had operating lease commitments of $155.1 million for ground, building and garage leases with maturity dates ranging from 2025 to 2083.

$7.3 million of this commitment is due within the next twelve months.

As of December 31, 2024, the Company had operating lease commitments of $125.1 million for ground, building and garage leases with maturity dates ranging from 2025 to 2083.

$6.4 million of these commitments are due within the next twelve months.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities) and six co-investments as of December 31, 2023 and 2022.

In accordance with accounting standards for consolidation of variable interest entities (“VIEs”), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities) and five co-investments as of December 31, 2024.

As of December 31, 2023, the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities) and six co-investments.

The Company consolidates these entities because it is deemed the primary beneficiary.

Essex has no assets or liabilities other than its investment in the Operating Partnership.

The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were approximately $956.7 million and $324.5 million, respectively, as of December 31, 2023, and $939.4 million and $324.3 million, respectively, as of December 31, 2022.

The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were $893.0 million and $319.1 million, respectively, as of December 31, 2024, and $956.7 million and $324.5 million, respectively, as of December 31, 2023.

Noncontrolling interests in these entities were $105.1 million and $121.1 million as of December 31, 2024 and 2023, respectively.

The Company’s financial risk in each VIE is limited to its equity investment in the VIE.

As of December 31, 2023, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary.

As of December 31, 2024, the Company was not deemed to be the primary beneficiary of any other VIEs.

Critical Accounting Estimates

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(i) accounting for the acquisition of investments in real estate;

and (ii) evaluation of events and changes in circumstances indicating whether the Company’s rental properties may be impaired.

The Company bases its estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the circumstances.

Actual results may differ from those estimates made by management.

and (ii) evaluation of events and changes in circumstances indicating that the carrying value of any of the Company’s rental properties may not be recoverable.

The Company accounts for its acquisitions of investments in real estate by assessing each acquisition to determine if it meets the definition of a business or if it qualifies as an asset acquisition.

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The reasonable likelihood that the estimate could have a material impact on the financial condition of the Company is based on the total consideration exchanged for real estate during any given year.

The Company periodically assesses the carrying value of its real estate investments for indicators of impairment.

The judgments regarding the existence of impairment indicators are based on monitoring investment market conditions and performance for operating properties including the net operating income for the most recent 12 month period, monitoring estimated costs for properties under development, the Company's ability to hold and its intent with regard to each asset, and each property's remaining useful life.

The Company periodically assesses its real estate investments for events or changes in circumstances that indicate the carrying value may not be recoverable.

12 month period, monitoring estimated costs for properties under development, the Company’s ability to hold and its intent with regard to each asset, and each property’s remaining useful life.

Although each of these may result in an impairment indicator, the shortening of an expected holding period due to the potential sale of a property is the most likely impairment indicator.

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Changes in operating and market conditions may result in a change of our intent to hold the property through the end of its useful life and may impact the assumptions utilized to determine the future cash flows of the real estate investment.

The Company bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

The Company bases its accounting estimates on historical experience, current market conditions and various other assumptions that are believed to be reasonable under the circumstances.

Actual results may vary from those estimates made by management and those estimates could be different under different assumptions or conditions.

Funds from Operations Attributable to Common Stockholders and Unitholders

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However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.

The table below is a reconciliation of net income available to common stockholders to FFO and Core FFO for the years ended December 31, 2023, 2022, and 2021.

As of and for the years ended December 31,

The table below is a reconciliation of net income available to common stockholders to FFO and Core FFO for the periods presented ($ in thousands, except per share amounts).

Year Ended December 31,

2024 2023 2022

($ in thousands, except per share amounts)

Funds from operations attributable to common stockholders and unitholders:

Net income available to common stockholders $ 741,522 $ 405,825 $ 408,315

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Funds from operations attributable to common stockholders and unitholders $ 1,063,878 $ 1,013,713 $ 923,361

FFO per share-diluted $ 15.99 $ 15.24 $ 13.70

Non-core items:

Expensed acquisition and investment related costs $ 72 $ 595 $ 2,132

Tax expense (benefit) on unconsolidated co-investments (2)

Tax (benefit) expense on unconsolidated co-investments (2)

(929) 697 (10,236)

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General and administrative and other, net (4)

39,341 6,629 2,536

Insurance reimbursements, legal settlements, and other, net (5)

(43,794) (9,821) (5,392)

Core funds from operations attributable to common stockholders and unitholders $ 1,038,167 $ 999,907 $ 977,857

Weighted average number of shares outstanding, diluted (FFO) (4)

Core FFO per share-diluted $ 15.60 $ 15.03 $ 14.51

Weighted average number of shares outstanding, diluted (6)

66,533,908 66,514,456 67,374,526

Funds from operations attributable to common stockholders and unitholders per share - diluted $ 15.24 $ 13.70 $ 13.98

Core funds from operations attributable to common stockholders and unitholders per share - diluted $ 15.03 $ 14.51 $ 12.49

(1) The Company consolidates certain co-investments.

The noncontrolling interest's share of net operating income in these investments for the twelve months ended December 31, 2023 was $3.3 million.

The noncontrolling interest’s share of net operating income in these investments for the years ended December 31, 2024, 2023 and 2022 were $2.9 million, $3.3 million, and $3.3 million, respectively.

For the year ended December 31, 2024, the amount includes $32.4 million of gain on sale attributable to noncontrolling interest.

(2) Represents tax related to net unrealized gains or losses on technology co-investments.

(3) Represents the Company's share of co-investment or loss from technology co-investments.

(3) Represents the Company’s share of co-investment income or loss from technology co-investments.

(4) Includes political advocacy costs of $33.3 million, $4.1 million, and $1.9 million for the years ended December 31, 2024, 2023 and 2022 respectively.

(5) Includes legal settlement gains of $42.5 million, $7.7 million, and $4.2 million for the for the years ended December 31, 2024, 2023 and 2022 respectively.

(6) Assumes conversion of all outstanding OP Units into shares of the Company’s common stock and excludes DownREIT limited partnership units.

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Please see the reconciliation of earnings from operations to NOI and Same-Property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented ($ in thousands):

Year Ended December 31,

2024 2023 2022

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Same-Property NOI

$ 1,147,993 $ 1,119,300 $ 1,069,085

Forward-Looking Statements

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Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “projects,” “believes,” “seeks,” “future,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements.

Such forward-looking statements include, among other things, statements regarding the Company's expectations related to the continued evolution of the work-from-home trend, the Company's intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, the Company’s first quarter and full-year 2024 guidance (including net income, Total FFO and Core FFO and related assumptions, including with respect to GDP growth, job growth and market rent growth), 2024 same-property revenue, new housing growth, operating expenses and net operating income generally and in specific regions, the real estate markets in the geographies in which the Company's properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from such economic conditions, inflation, the labor market, supply chain impacts, geopolitical tensions and regional conflicts, trends affecting the Company's financial condition or results of operations, changes to U.S.

tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

Such forward-looking statements include, among other things, statements regarding expected operating performance and results (including projected Same-Property revenues and expenses), qualification as a REIT under the Internal Revenue Code of 1986, as amended, property stabilizations, property acquisition and disposition activity, joint venture and co-investment activity, development and redevelopment activity and other capital expenditures, capital raising and financing activity, revenue and expense growth, financial occupancy, interest rate and other economic expectations, included projected new housing supply.

While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

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Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following:

potential future outbreaks of infectious diseases or other health concerns, which could adversely affect the Company's business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located;

the Company may fail to achieve its business objectives;

the actual completion of development and redevelopment projects may be subject to delays;

the stabilization dates of such projects may be delayed;

the Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses;

the total projected costs of current development and redevelopment projects may exceed expectations;

such development and redevelopment projects may not be completed;

development and redevelopment projects and acquisitions may fail to meet expectations;

estimates of future income from an acquired property may prove to be inaccurate;

the short and long-term impact of the January 2025 California wildfires, including in relation to regulation, insurance, tenant demand and other factors;

occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions;

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geopolitical tensions and regional conflicts, and the related impacts on macroeconomic conditions, including, among other things, interest rates and inflation;

the Company may be unsuccessful in the management of its relationships with its co-investment partners;

future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements;

changes in laws or regulations;

the terms of any refinancing may not be as favorable as the terms of existing indebtedness;

unexpected difficulties in leasing of development projects;

the Company’s inability to maintain its investment grade credit rating with the rating agencies;

the Company may be unsuccessful in the management of its relationships with its

co-investment partners;

the Company may fail to achieve its business objectives;

time of actual completion and/or stabilization of development and redevelopment projects;

estimates of future income from an acquired property may prove to be inaccurate;

future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements;

changes in laws or regulations and the anticipated or actual impact of future changes in laws or regulations;

unexpected difficulties in leasing of future development projects;

volatility in financial and securities markets;

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unforeseen consequences from cyber-intrusion;

the Company’s inability to maintain our investment grade credit rating with the rating agencies;

government approvals, actions and initiatives, including the need for compliance with environmental requirements;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis